BOOK REVIEW The Granularity of Growth: How to Identify the Sources of Growth and Drive Enduring Company Performanceby Patrick Viguerie, Sven Smit, Mehrdad Baghai; Wiley Publications: Authors argue leaders of large institutions should avoid taking an averaged view of their businesses and should manage them with greater focus at a more detailed level, while continuing to take advantage of their scale, writes Stefan Stern

There is no such thing as a growth industry.

No, this is not the latest doom-laden forecast for 2008. It is the penetrating insight offered by three management consultants - two from McKinsey, the other a former McKinsey partner - in this thought-provoking new book.

Too often people speak in the most general terms about market trends. "The world's ageing population will generate increasing demand for healthcare," we might say, or "You have to invest in the booming Chinese economy".

But closer analysis reveals these sweeping remarks do not help you to understand how businesses actually make money.

"Most discussions of megatrends take place at a very broad and superficial level," Viguerie, Smit and Baghai argue.

"That may be fine for financial commentators on TV or casual dinner-party chat, but it's not much use if you happen to be the CEO of a large company trying to make decisions about where to compete or to allocate resources."

Consider a customer walking into a branch of Starbucks. Will he or she simply order "a cup of coffee"? Unlikely. The customer makes a specific and deliberate choice. In economies and product categories, this effect is magnified on an industrial scale.

So, the authors say, managers' understanding of markets has to go much deeper, down to a "granular" level.

"We believe that the leaders of large institutions need to avoid taking an averaged view of all their businesses; instead, they should manage them with greater focus at a more detailed level, while continuing to take advantage of their scale," the authors write.

McKinsey has hired a team of data analysts based in India to carry out what the firm calls "granular growth decompositions" - a detailed study of the way companies make money.

They have separated this revenue generation into three main categories: mergers and acquisitions; "portfolio momentum" or growth in revenue achieved in the markets where a business competes; and "share gain" or achieving a greater share of a given market.

Their findings are pretty startling. For one thing, M&A does not seem to be an inevitably value-destroying route. Indeed, the coming slowdown could be a great time to make some smart acquisitions, the authors say.

Second, "portfolio momentum" is of supreme importance. This vital measure of strategic performance reveals the wisdom of decisions taken many years earlier.

The authors quote approvingly the candid thoughts of an ex-CEO of Shell, Lo van Wachem: "The actual revenue I realise today is grossly dependent on the energy reserves acquired and explored by the two CEOs before me, and CEOs two generations after me will reap the rewards of my efforts."

Third, agonising over market share can be a waste of time, however important we believe it to be. Have "superior insights" or "truly distinctive capabilities" instead, they advise.

"If you don't, you'll find your competitors' execution soon matches yours, and your market-share performance will take a dive . . . stalling your growth programme."

McKinsey's analysis has confirmed the authors in their belief that a business's success depends heavily on the markets in which it operates.

"So the next time a company announces stellar performance, it's worth taking a closer look to see how much of its growth came from better steering, and how much from a favourable tailwind," they write. "What is driving performance: execution or strategic choices?"

Practically, a company like Procter and Gamble seems to have taken the granularity message on board. Its skilful brand management embodies this. And yet, P&G's rival Unilever arguably tripped up in recent years by cannibalising its own brands, getting its granules in a twist.

So "going granular" is not easy. And doesn't it all sound rather time-consuming? It needn't be so. "In our experience . . . the critical issues affecting growth are brought to light immediately, making the dialogue between the executive board and the business unit much more specific," the authors say.

"In most cases, the number of issues discussed doesn't increase, but the specificity and quality of those issues rises dramatically."

In 2008, you can stop worrying so much about market share and get to grips with choice market granules instead. - ( Financial Times service)